GBPUSD Eyeing BoE Rate Decision, Brexit Amid Prime Minister Race

TALKING POINTS – BREXIT TIMELINE, BOE RATE DECISION, UK PRIME MINISTER RACE

• GBPUSD eyes BoE rate decision, Brexit commentary
• Race for Prime Minister may unnerve Sterling traders
• Boris Johnson remains in the lead in the race for PM

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GBP traders will have a tense day ahead with the Bank of England (BoE) rate decision and potential commentary from policymakers on a re-evaluation of Brexit risk in light of the ongoing race for Prime Minister. After two ballot votes, Boris Johnson remains comfortably ahead as the number of candidates continue to thin out. The central bank will likely hold rates amid the clouds surrounding the still-pending EU/UK divorce.

However, this puts the BoE in a tight spot. Year-on-year inflation has been trending above the central bank’s 2 percent target, though a muddy outlook for Brexit continues to deter changes one way or another. The magnitude of the separation’s economic impact would likely require officials to adjust monetary policy whatever the outcome. The central bank does not want to risk acting prematurely in a time of unprecedented uncertainty.

If the BoE raises rates and a “hard Brexit” occurs, this may undermine economic growth and amplify the shock of the UK crashing out of the EU. Never mind the fact that the world is experiencing a slowdown in economic activity which in itself creates an inhospitable environment for tightened credit conditions. The central bank has to cautiously navigate uncharted waters.

Feeling lost on Brexit? See our interactive infographic!

Today, a third ballot will be held to weed out other potential candidates for PM. The current ones are Former Secretary Boris Johnson, Home Secretary Sajid Javid, Foreign Secretary Jeremy Hunt, Environment, Food and Rural Affairs Secretary Michael Gove and International Development Secretary Rory Stewart. The decision for who will take up the mantle will be announced on the week of July 22.

CHART OF THE DAY: TIMELINE FOR BREXIT

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--- Written by Dimitri Zabelin, Jr Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitri on Twitter